News
BUILDING? BRING CASH
November 19, 2012
| The construction and development forecast is mixed across sectors, but one thing’s for certain: Access to ample capital is required if you want your projects to move forward, according to panelists at Bisnow’s third annual New York Construction & Development Summit Friday at the Marriott Marquis. |
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| Plenty of folks are looking to part with cash—Simon Development Group principal Matthew Baron says high-net-worth individuals and overseas investors see New York as a safe place to invest. But the right basis (which solves a lot of problems to begin with) and a good track record are musts for developers. Matthew sees opportunity in broken assets where developers don’t have enough money or have stopped construction midway and need a partner with capital to move forward. (Anyone have blue and yellow bricks to complete our half-finished Lego tower?) |
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| If you don’t have 40% to 50% in equity, you can’t do a project on your own, warns LePatner & Associates founder Barry LePatner. “It’s a tenuous marketplace with wonderful opportunities, but for the unwary, it’s full of pitfalls. If you’re not sophisticated, get a team that can offer that sophisticated advice.” (That seems like the same advice people used to give Christopher Columbus.) |
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| There’s still a ton of capital on the sidelines, The Witkoff Group principal Scott Alper told the crowd of 200, but it’s “brutal” raising money—instead of taking a few months to raise a fund, it could take a few years. “It’s difficult for new developers unless they finance all cash or have teen rates on money.” |
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| Scott says his firm is focused on supply constrained markets on the residential condo side. His firm and other partners also came in with equity to help the 340k SF Times Square retail and hotel tower at 701 Seventh Ave move forward. But he’s not so bullish on NYC office leasing, despite the many leases being inked by startups and tech companies. “You need take-up from the big financial institutions,” he says. “If you look at how many major deals there were the past two quarters, there were none.” |
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| Money was never made on operating office buildings, which is getting more and more expensive, according to HFZ Capital founder Ziel Feldman—only buying and selling them correctly during cycles. His concerns: the rental market (particularly as real estate taxes are going up to unprecedented levels) and the pool of mayoral candidates (20 oz. soda cups everywhere agree). Luxury rentals, driven by overseas buyers, are fine, but the upper-middle class market—think the Wall Street types—worry him. “I’m hoping inventory is less than demand.” |
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| It’s about “eds and meds” right now, says JLL managing director George Ladyman, with biotech, hospitals, higher education, and student housing leading the market. Now that Obama is in for a second term, it’ll be interesting to see how healthcare changes impact the market, he says. There are pockets of commercial activity around the city, but overall, it’s not getting any easier to build in Manhattan. But the sky is not falling: “It’s all about execution.” |
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| Moderator Michael Zetlin, founding partner of law firm Zetlin & De Chiara. Where's the future of development? Matthew says the waterfront is attractive, if done right—just look at Long Island City. But we need to look at the vulnerability of our low-lying areas, Barry says—from Florida to Maine, there are 21 areas similar to New York, and they have to look at the new realities of risk management. “A 100-year storm doesn’t mean a 100-year storm anymore,” he says. “Will we continue to put generators and medical equipment on the first floor? Will insurers back away?” (We’ll add millions of bearer bonds and stock certificates to that list.) |
